I often write on Quora.com, where I am the most viewed writer on financial matters, with over 355.5 million views in recent years.
In the answers below I focused on the following topics and issues:
- What do you think 2022 will look like for the sock market?
- What is more useful than monetary wealth?
- Should we be afraid of inflation?
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Source for all answers – Adam Fayed’s Quora page.
What do you think 2022 will look like for the sock market?
Nobody knows for sure. If somebody knew in advance, everybody could stay in cash and get in at the right time.
Look at recent years:
- 2016–2017. Most people were pessimistic and worried about Trump getting elected, and Brexit. Markets rose 10% in 2016 and 19.4% in 2017.
- 2019. Stocks finished badly. After hitting records in the first half of 2018, the major stock markets fell by 25% in late 2018/early 2019. The S&P500 was down 6% for 2018. People were pessimistic. The S&P500 returned almost 29% in 2019, which few people expected
- 2020. People weren’t as pessimistic on January 1, 2020, compared to 2019. Few saw a big fall coming. Even fewer saw a government lockdown and a huge 50% fall – the quickest 50% fall ever. Despite this, markets surged back and ended up 16.26% up for the year. Once again, worries about elections were unfounded.
- 2021. The S&P500 was up 27%. Most analysts expected a rise, but not that much.
I don’t know anybody who predicted all of these things, or even half of them. Those who stayed in cash missed out.
Now, let’s come to 2022. My best-estimated guess is that, if you include dividends, markets will be up 8%-10% for the year.
Or, let’s put it another way. When you include the present dividend yield and earnings growth, that is the indication, with some non-US markets to perhaps outperform.
However, markets don’t always respond to the fundamentals. They can rise, or fall, for any number of reasons.
Markets have fallen 6%-10% this year, when nothing fundamentally has changed. ]
They fell about 10% due to mere speculation about omicron, before recovering to end 2021 at record highs.
The founder founder Jack Bogle, below, made an interesting observation
There are always two returns in investing:
- The real investment return, which is linked to dividends, earnings growth, and many other things
- Then there is the speculative return, which can be negative or positive, and isn’t based on the fundamentals. For example, it made no sense that even the tech-heavy Nasdaq fell about 30% during the start of Covid-19 when the big-tech firms were making huge money from people staying at home.
So, I make no predictions for the markets in 2022, only that many people will continue to make the same mistakes, try to outsmart them and allow emotions to get in the way of a rational strategy.
Already this year, there are probably people who are afraid to invest due to some clickbait or sensationalist news headlines.
Those are the same people who were worried about the 2016 and 2020 elections, and many of the events I referenced above.
What is more valuable than monetary wealth?
On the far right is Charlie Munger.
- Is Warren Buffett’s long-time business partner
- Is worth 2–3 billion USD
- Turned 98 a few days ago
- Is blind in one eye
- Stays in a wheelchair
Now ask yourself a question. Would you voluntarily swap places with a 98-year-old man who is disabled?
It would be foolish as you would be dead in a matter of months or years and have a lower quality of life than you probably do now.
Most people wouldn’t even choose to have 2–3 billion, and remain at the same age as they are today, in return for the loss of sight.
Don’t get me wrong, Munger probably has a better quality of life than the average 98-year-old.
He still has his mental capacity, has no financial worries, and still has a purpose considering he hasn’t retired.
The point is your health and time count more than money. That is why the most sensible wealthy people tend to care more about time than just money.
If you look after time properly, it helps your mental and physical health, and ironically, can make you more money long-term.
Money, and especially wealth, merely gives you the opportunity to make more “correct” choices, and avoid becoming a wealthy fool.
Somebody with no security simply has fewer choices. That is why a lot of the most serious issues, such as ill-health, are more likely to affect people with fewer resources.
Should we be afraid of inflation?
Yes and no. The above shows how you need your investments to keep pace with inflation.
A 2%-3% loss to inflation isn’t a big deal for a year, but really starts to compound. When you have noticed, it is bad, which is why inflation is considered the silent killer of portfolios.
However, when it comes to earnings, they do tend to outpace inflation in the very long-term.
In the 1980s, the UK government started to link future pension pay to the CPI inflation index, and not pay, for a simple reason – it is cheaper in the long-term.
There are exceptions, such as the 2008–2015 period, but that doesn’t change the long-term trend:
Whilst 5% inflation compared to 2% inflation isn’t always a big deal for wages, out of control inflation is something else.
We have seen it recently in Turkey, Argentina and most notoriously in Venezuela and Zimbabwe.
That kind of inflation impoverishes everybody who has savings in the bank, and is paid in local currency.
That is one reason why it always makes sense not to put all your eggs in one countries, and currencies, basket.
It is for that reason that almost every middle-class person living in certain countries want to invest internationally, whereas it is considered quite an elite thing in some more stable countries.
Ultimately, if you are living in Switzerland, you might not see the benefit of being paid in USD and investing globally if you can already get access to the local markets from the country you are based in.
The same isn’t true in many places, where people are more actively worried about inflation and wider instability.
It makes sense in every country to plan for the worse, and hope for the best.
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Adam is an internationally recognised author on financial matters, with over 461.9 million answers views on Quora.com and a widely sold book on Amazon